Radio Forgets to Pay the User First

Phil Torrone just sent in a pointer to a great editorial by Howard Kurtz in the Washington Post about XM and Sirius, entitled Satellite Synergy. The point of the article was that the proposed merger should go through because the two money-losing satellite radio networks aren’t really competing with each other, they are competing with the iPod and internet downloads. Kurtz notes, “I just wish they had more competition from terrestrial radio.”

As Phil noted in his email, the best quote in the article is this:

The reason these two companies have 13 million subscribers willing to
cough up $12.95 a month for something we all grew up thinking should
be free is that commercial radio has self-destructed.

All these folks (including me) are paying for satellite because they’re tired of cookie-cutter radio formats stuffed to the gills with commercials. They’re also fed up with focus-grouped music stations that play the same 60 songs until you keep hearing the chords in your sleep….

Really, can you think of an industry (okay, maybe American automakers) that has frittered away such huge advantages and sent its customers scrambling for alternatives?

I can think of several. Close to home, Microsoft and the PC software industry is a great example. Television networks and local stations are another. Cell phone carriers are still making money, but I’ll lay odds that they will one day wake up to disruptive competition.

Each of these industries forgot one of the key principles of success in business, which is to focus on your customers. In our Web 2.0 Principles and Best Practices report, John Musser calls this “paying the user first.”

Just remember how Google got their edge. It wasn’t just pagerank and better search results, it was refusing to go the portal route, with intrusive advertising, and instead trying to figure out how to create a better user experience with advertising. Making ads non-intrusive and useful to their real customers was one of Google’s biggest breakthroughs. (They will forget that at their peril.)

In a world where you get increasing returns from network effects, putting users second, or third, or fourth, in the hierarchy of your concerns is a losing proposition.

That being said, I won’t claim that either Sirius or XM has a great track record here. Each of them tried to lock in all kinds of exclusive content and adopted incompatible winner-takes-all hardware approaches. That’s why, despite the sad state of the competition from terrestrial radio, they’ve still lost so much money.

Today, you need to ride the wave of commoditization in both hardware and software, and build your value in new ways. Understanding those new ways is the heart of Web 2.0. And a big part of that is putting the user first.